Managing reward: Job evaluation and grading

Section two of the Personnel Today Management Resources one stop guide on managing reward, covering job evaluation and grading, including: non-analytical and analytical schemes, grading systems and equal pay considerations. Other sections .

Job evaluation

Job evaluation is the foremost 'formal' method used by organisations to determine the relative worth of jobs and, in turn, pay levels. The 2004 CIPD Reward Management Survey revealed that the proportion of companies using job evaluation is actually increasing, with 5 per cent intending to develop a job evaluation scheme within the next 12 months. Findings from a recent www.e-reward.co.uk survey report similar findings, highlighting the continuing popularity of job evaluation.

The CIPD survey data show that 49 per cent of organisations are using job evaluation as a key factor in determining pay levels for managers/first-line supervisors, while 40 per cent of organisations use job evaluation for manual workers.

Having heralded the continuing popularity of job evaluation, it is fair to observe that such schemes are more likely to be a feature of larger or public sector organisations than smaller, private companies.

Different approaches to job evaluation

Anyone with any experience of job evaluation will be familiar with the mantra that it is 'about the job, not the person'. This noble ambition does not always compare well to the realities of organisational life - particularly at more senior levels where jobs are more role than task based and the individual is able to stamp their own personality or particular approach on the deign of that job role. Where managers work in a dynamic environment with the freedom to shape their own role, job evaluation may feel less like a scientific method than it does in a more hierarchical organisation.

Any method of job evaluation is underpinned by job analysis - the process by which jobs are broken down into their component parts. The data collection techniques used can include the review of job descriptions, person specifications, special job evaluation questionnaires, interviews (with job holder, line manager, peers), consideration of job titles or assessment of factors. Factors analysed may be the judgement required at a particular job level, budgetary or resource management responsibilities, the complexity of the role, or the qualifications or competencies needed to operate effectively in a given job.

However many of these job analysis techniques are used, they will likely roll up into one of the following common approaches to job evaluation:

Non-Analytical Schemes

Ranking of whole jobs in order of 'size', complexity or business impact is the most straight-forward method of job evaluation. The system works, as the title suggests, by listing jobs in their order of importance comparing one criterion or multiple criteria. However, using only one aspect of the job is more likely to distort outcomes. The process will usually focus on a handful of 'benchmark' jobs (rather than a time-consuming evaluation of all jobs in the organisation) around which other roles are placed in their assessed order of importance. Once all jobs have been listed, the job evaluators will need to make decisions about the number of grades they would like to use in their organisation and then lines are drawn through the rank order at agreed break points, eg, at each point where there is perceived to be a step difference in the size of jobs.

Job ranking may be conducted for all jobs in the organisation or by each separate 'job family', eg, finance, HR or operations. The key considerations for determining the most appropriate number of grades is explained later in this section.

Job categorisation - sometimes termed job classification - is another form of non-analytical job evaluation. This is more of a top-down approach whereby the categories, classes or grades are determined in advance and roles are slotted or placed into the category in which they are perceived to fit best. This is usually conducted on the basis of 'whole job' consideration. The Federal US Fair Labor Standards Act (FLSA) is in effect a simple form of job categorisation inviting employers to classify jobs as exempt or non-exempt (for overtime pay) based on a combination of tests - broad definitions and a salary threshold.

Paired comparison is, in many respects, a more rigorous approach to job ranking. Paired comparisons force the employer to make a choice between two factors or two whole jobs and arrive at more objective decisions about the relative worth of a job. This technique is especially valuable when jobs have been ranked by job family and the HR director wants to ensure that comparable measures of worth have been applied consistently across and within each job family. Bringing together line managers or job evaluators from each job family will force the comparison of roles and, if successfully managed, result in a well calibrated one company solution.

Analytical schemes

Points factor is by far the dominant form of job evaluation, the Hay job evaluation method being the leading proprietary brand of 'points factor' schemes.

The Points Factor method is a highly analytical approach to job evaluation, breaking down jobs into a number of factors against which points are allocated. Selection of appropriate rather than inappropriate factors is crucially important as these factors are usually deployed across the whole organisation (in the belief they are the building blocks of each and every job). As a result, points factor - more than any other method - will highlight the importance of focusing on the job rather than the person. This is because the factors are intended to be impersonal objective lenses through which a job is deconstructed into its component parts, each part scored independently, and then the values are added together to give a total points value to the re-assembled job. A simple illustration of points factor scoring is provided (below ).

In this example, a job which requires a graduate with independent decision-making, but a small budget responsibility, would attain a score of 140 (40+90+10).

Grading systems

Formal and informal grading systems

Grading systems may or may not be underpinned by a job evaluation system. When they are, it is more likely that more objective grading decisions will be made. This will be an important consideration in equal pay claims (see below ) where pay levels or benefits entitlement is linked to grade. By extension, the more informal the process for arriving at grades the greater the risk of equal pay claims or employee relations issues in general.

Job evaluation is often a back-office process which lacks transparency for most employees, they only seeing the outcome, typically expressed in terms of grade distribution. Grades are used to give structure to salary scales or ranges and benefit entitlements (eg, eligibility for a company car will often be grade based). An example of the correlation between job evaluation, grades, salaries and benefit entitlement is shown below .

Equal pay

The subject of equal pay cannot be done justice as a sub-section of this guide and is the subject of a separate one-stop guide entitled Equal Pay Reviews . However, it would be improper to consider the subject of job evaluation without highlighting its importance to the subject of equal pay.

Central to the question of whether gender differences in pay exist is consideration of whether males and females are undertaking work of 'equal value'.

If the organisation is operating an analytical job evaluation system and has chosen factors in a non-discriminatory manner this is likely to be the most effective defence against an equal pay claim. Discrimination can potentially occur in the weighting of factors. For example, if an organisation attaches disproportionately high value to those factors which are usually found in, say, male dominated jobs. An analytical job evaluation method not only gives an organisation greater assurance that pay decisions are not biased by gender discrimination, but offers an objective basis on which to defend current practice (assuming of course the facts support a defence of the claim). This is because analytical job evaluation is focused on understanding different, but potentially equal value, jobs, and establishing a rationale for ultimately paying different rates of pay where this is justified by 'objective' criteria.